Can I qualify for a mortgage if I previously lost my home?

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Bad things happen - unemployment, divorce, prolonged illness, or death of a spouse. In your financial life, these bad things can result in more bills than you can pay. In extreme situations you may be unable to make your mortgage payments and lose your home.

Mortgage lenders do not want to repossess homes. They are in business to lend money, not manage real estate. Thus, when someone loses a home due to foreclosure, short sale, or deed-in-lieu of foreclosure ("returning the keys"), prospective lenders are more cautious about extending new credit.

This caution manifests itself in waiting periods between the loss event and approval for a new mortgage. The length of the waiting period depends on the mortgage program and the your specific circumstances, but in addition to the elapsed time, lenders generally are looking for two things. First, they expect you to reestablish good credit. This can be difficult after losing a home, but check out our article, "You can recover from credit disasters" for suggestions. Second, lenders want to make sure that the situation that led to the loss is not likely to recur.

Some mortgage programs have provisions for extenuating circumstances that can shorten the required waiting period. As this is an exception to the standard loan guidelines, your lender will ask for your help to carefully document that the circumstances were beyond your control. Note that the inability to sell your home due to relocation is not considered a circumstance beyond your control. In addition, divorce generally is not considered a circumstance beyond your control with the exception of an ex-spouse defaulting on a home connected to the divorce settlement.

So, let's look at the required waiting period for each mortgage program.

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